Second-Gen GST reforms needed for simplicity, equity, competitiveness
In my last column (Business Standard, September 12, 2024), I argued for initiating second-generation reforms in the Goods and Services Tax (GST) system to make it simpler, more transparent, and less cascading. Reforms are necessary to make the consumption tax system more comprehensive, less distortionary, and export competitive.
Enhancing the revenue productivity of the tax system and reducing cascading in the consumption tax is important to achieve the aspirational goal of reaching the developed country status by 2047. Tax reforms tend to be more successful when the economy is on the upswing, as the risk of revenue loss is lower. The three important suggestions made are (i) restrict the exemption list to perishables and necessities; (ii) reduce the number of tax rates to two, with a third rate reserved for sumptuary or “sin” goods, without sacrificing revenues, and (iii) extend GST to currently excluded items — namely, petroleum products, electricity, and real estate to make the self-enforcing system more comprehensive.
